Context:
Indian life insurers are rebalancing their product mix towards participating (par) insurance products, moving away from unit-linked (ULIPs) and aggressively priced non-participating (non-par) products. This comes in response to volatile equity markets, falling interest rates, and pricing competition, which have increased balance sheet risks.
What are Par Products?
- Par Products (Participating Policies) are life insurance policies where the policyholder is eligible to receive a share in the profits (surplus) of the insurer, in the form of bonuses or dividends.
- These are called “with-profit policies”.
- Surplus depends on investment returns, expenses, and claims experience.
- Unlike non-par products (which offer fixed guaranteed returns but expose insurers to risk in low-rate environments) or ULIPs (where the policyholder bears full market risk), par products balance security with growth potential.
Key Features
- Profit Sharing
- Policyholders share in the insurer’s distributable surplus, usually declared annually.
- Bonuses are not guaranteed and depend on the insurer’s financial performance.
- Types of Bonuses
- Reversionary Bonus: Declared annually, added to the sum assured.
- Cash Bonus: Paid out immediately.
- Terminal Bonus: Paid at maturity or death.
- Premium
- Slightly higher than non-par products, since part of the premium funds the bonus pool.
- Returns
- Combines guaranteed benefits (like sum assured) with non-guaranteed bonuses.
- Provides long-term savings + protection.
